Asked by Kyran English on Jul 04, 2024
Verified
Kelsey has a loan that requires a $25,000 lump sum payment at the end of three years.The interest rate on the loan is 5%,compounded annually.How much did Kelsey borrow today?
Compounded Annually
A method of calculating interest where the interest earned over a period is added to the principal, and the total becomes the base for the calculation of the next period's interest.
Lump Sum Payment
A payment made in a single lump sum amount, often used in the context of paying off debts or settling transactions.
- Ascertain the present worth of future monetary contributions or investments for evaluation of their contemporary value.
- Execute the application of compound interest, both semiannually and annually, in financial analysis.
Verified Answer
HT
Hussein TareqJul 11, 2024
Final Answer :
$21,595
The PV factor on the Present Value of 1 table when n = 3 and i = 5% is 0.8638
Present Value = Future Value * PV Factor
Present Value = $25,000 * 0.8638 = $21,595
The PV factor on the Present Value of 1 table when n = 3 and i = 5% is 0.8638
Present Value = Future Value * PV Factor
Present Value = $25,000 * 0.8638 = $21,595
Learning Objectives
- Ascertain the present worth of future monetary contributions or investments for evaluation of their contemporary value.
- Execute the application of compound interest, both semiannually and annually, in financial analysis.